The latest statistics from the People's Bank of China (PBC), the country's central bank, show that China's foreign exchange reserves declined to $3.65 trillion at end of July this year, from $3.99 trillion at the end of June 2014. The data has led some people to assume that more than $300 billion of foreign capital has been withdrawn from China, and that the country is facing a situation of considerable capital outflows.

However, the decline in the foreign exchange reserves can be viewed from three different aspects, and it is not wise to draw simplistic conclusions.

First, dollar deposits of local residents and banks have increased sharply since 2014. Dollar deposits increased by $108 billion in 2014, and roughly $70 billion during the first half of 2015. In a change from the past, when foreign exchange reserves were concentrated in the central bank, part of China's foreign exchange reserves are now kept in the form of private holdings of dollars in China's banking system that belong to domestic enterprises and residents. This is a positive trend as it shows that Chinese individuals and enterprises are balancing their deposits with a proportionate holding of the yuan and dollar so as to minimize possible risks in the future.

Second, in recent years, State-owned enterprises and private enterprises have both accelerated their overseas investments following China's "going-out" strategy.

Some of the investments following the "going-out" strategy and the ongoing "One Belt, One Road" initiative are processed in dollars.

And finally, we also need to take into account the factor of exchange rates. In the past year, the euro, yen and other foreign currencies that constitute part of China's foreign exchange reserves have depreciated considerably against the dollar. China's foreign exchange reserves are diversified, but the official data on the sum of foreign exchange reserves is denominated in dollars. After taking the depreciation into account, China's foreign exchanges reserves have slightly decreased in dollar terms.

After considering all these factors, I believe China's capital flows are within a reasonable range. But it is important for the authorities to continue to pay close attention to the cross-border capital flows and maintain a reasonable and orderly state for reserves.

The article was compiled by Global Times reporter Wang Wei based on a speech by Yi Gang, vice governor of the People's Bank of China, at a press conference. bizopinion@globaltimes.com.cn